Canadian homeowners are feeling the pinch as mortgage costs surge to unprecedented levels, prompting the government under Prime Minister Justin Trudeau to urge leniency from banks. However, some private lenders, like Nick Kyprianou, CEO of RiverRock Mortgage Investment Corp., are taking a tough-love stance.
Mortgage investment corporations (MICs), such as Kyprianou's firm, are in a precarious situation. The sharp rise in borrowing costs has disproportionately affected MIC borrowers, often burdened with interest rates exceeding 10%. Unlike Canada's major banks, MICs lack substantial resources, making it challenging for them to allow extended grace periods for missed payments without risking financial stability.
Kyprianou's approach is direct. When a borrower misses a payment, his company initiates contact to explore avenues for getting back on track. If that proves unsuccessful, an ultimatum is delivered: sell now or face a forced sale by the lender.
The Canadian Mortgage Charter, released by Trudeau's government, outlines guidelines for banks to assist borrowers in the face of skyrocketing interest rates. However, MICs fall under provincial regulations, leaving Trudeau powerless to enforce these guidelines. Kyprianou contends that private lenders must act decisively with delinquent borrowers to avoid financial ruin.
"I think not all MICs will survive," he cautioned. "They're being passive, hoping the market will solve their mistake."
Reports indicate a surge in new property listings nationwide, with indications that MICs are behind some of these forced sales. Despite representing only 1.7% of the national mortgage market, alternative lenders, including MICs, have witnessed double-digit growth. This is partly due to their exemption from the federally mandated mortgage-stress test, drawing borrowers unable to meet stringent bank criteria amid the highest interest rates in over two decades.
Matthew Gibson, a real estate lawyer in Hamilton, Ontario, notes a three-fold increase in mortgage actions from alternative lenders compared to the previous year. He emphasizes the slower response of major banks, attributing it to their size and assets, contrasting it with the more rapid actions required of private lenders facing financial vulnerability.
Jared Gage's experience illustrates the personal toll of these high-interest loans. Despite initially managing a 19% annual interest rate on a second mortgage from a private lender, Gage and his family faced foreclosure proceedings as they fell behind on payments. The lack of warnings or guidance from the lender, real estate lawyer, or mortgage broker left them feeling unprotected.
As housing prices continue to drop and the urgency mounts, alternative lenders face tough choices. The Trudeau government's guidelines for banks focus on keeping arrears low, offering flexibility to borrowers through reduced payments. However, critics argue that such measures may lead homeowners into perpetual debt, with amortization periods stretching beyond 35 years.
The dynamics of the housing market are shifting, driven in part by alternative lenders forcing sales. The increase in listings mentioning "power of sale" or "mortgage" indicates a growing trend, particularly in Ontario, where alternative lenders are most active. As the housing market grapples with uncertainty, the consequences of delinquent payments and forced sales remain a challenge for both lenders and homeowners alike.
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